Let’s Talk About Tax, Baby*

Posted by Ben Mather25sc on September 21, 2018

Talking about tax just got a lot more interesting.

Reading the Tax Working Group (TWG) interim report was eerily like reading The Opportunities Party policy pages. While the devil is in the detail with all matters of tax, on a high level the Tax Working Group has put many TOP policies squarely on the table for public debate:

TOP refers to this as a reform of the income tax system – simply making sure that all wealth pays its fair share of income tax. The TWG refer to it by the decidedly unsexy title of “taxation of deemed returns from certain assets (known as the risk-free rate of return method of taxation)”.

This is going to need some serious plain Englishing to get the idea across to the good people of New Zealand. Essentially the idea is the same as TOP’s tax reform, which means that all major assets would be required to pay a minimum level of tax. This makes sense because if an asset isn’t earning as much taxable return as money in the bank, you have to assume that the owner is getting a return in non taxable ways.

The other big news in the TWG report is that speculation driven by holes in the tax system is finally accepted as contributing to the housing crisis. They still point the finger at supply as the main issue. However, the good news that TOP’s tax reform takes care of speculation and can help the supply issue at the same time! The tax would apply to bare land, so land bankers would not only face an end to capital gain but also a charge for not using the land. Just watch those houses go up.

Presumably, given the Government’s terms of reference, the family home would be excluded, which as I’ve discussed previously is another whole can of worms. A Capital Gains Tax is also still on the table for discussion, but for a variety of reasons we’ve set out previously it is the inferior choice because it won’t make much of a difference to house prices – and could in fact harm economic growth.

A Zero Carbon Act is a great start, but we will start to see meaningful action on climate change when the Emissions Trading Scheme is strengthened so the price of carbon rises. This is exactly what the TWG is recommending, and was TOP policy at the last election.

Businesses will start investing in reducing emissions, and marginal land (especially the erosion prone stuff) will get trees planted on it. If the price of carbon gets high enough, and is credible, Shane Jones might not even need to spend his $3b fund getting a billion trees planted.

The TWG has also put congestion charging on the table. This is not only great for the climate, but is a far better way pay for our transport infrastructure than fuel taxes (which really hurt the poor and their gas guzzling cars).

This is a bit down the list, framed as a ‘medium term issue’ but the TWG has highlighted water abstraction charges and pollution charges as a way of dealing with these issues. Their principles for designing such charges are very much in line with TOP’s policy, including resolving Maori interests in water.

As mentioned, the devil is in the detail, but at first blush, this was not a bad day at the office for the TWG.

This is NOT a tax grab

As soon as anyone brings up new tax ideas, the immediate response is to slap it down with a claims it is a tax grab.

We will say this slowly…. This is NOT a tax grab.

TOP wants to reform our tax system, but NOT increase the overall tax take. For example our tax reform in Policy #1 is offset by a reduction in income taxes – by up to a third. If wealth pays its fair share of tax, then people who actually work for a living can pay a lot less. We calculate this would make 80% of Kiwis better off.

These changes are all big stuff that could make a massive difference to the way we run our country. Tax can affect everything: inequality, house prices and even the cleanliness of our water and air. If we can resolve some of these nasty issues and raise the money we need to run the country at the same time then that has to be a good thing.